CFTC Bars Election Derivatives

Trading on outcome of 2012 White House, Congress votes would be gambling, regulators say.

U.S. regulators barred a Chicago exchange from allowing trades in derivatives tied to the outcome of the 2012 U.S. elections, deciding that the transactions would constitute gambling and undermine the public interest.

The North American Derivatives Exchange sought to offer contracts tied to the outcome of the elections and whether Democrats or Republicans would control the U.S. House, Senate and White House. The U.S. Commodity Futures Trading Commission, which regulates futures contracts tied to wheat, oil, natural gas and other commodities, said yesterday that it ordered the exchange not to list election contracts for clearing or trading.

“We felt strongly that these products met all legal and regulatory criteria for listing, and that the public would benefit from having these products traded on a well-regulated exchange,” Tim McDermott, general counsel at Nadex, said in an e-mailed statement.

The company said the contracts would have allowed traders to take an economic position on the election’s consequences for tax policy and other issues. The company said existing political events contracts, allowed by the CFTC to trade on the Iowa Electronic Market, an academic project of the University of Iowa, have offered accurate predictions of election outcomes.



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